There are a couple of stories in the news today that illustrate the main street impact of what many currently view as a Wall Street problem. Does a stunning tightening of credit affect the man in the street? You bet:
AT&T this week announced they're feeling the strain of the credit crunch, with Chairman and CEO Randall Stephenson saying the company was unable to sell any commercial paper (short term IOU notes) last week for terms longer than overnight. The company this week also announced that they've undergone a major reorganization in order to respond more quickly to cable competition. Managers tell GigaOM privately that they're expecting layoffs between 5% and 20% before long, thanks to declining landline sales, struggling markets, and the recent merger.
That's not a direct link between the credit squeeze and the layoffs, but the increased cost of borrowing faced even by a firm like AT&T is far more dangerous to thousands or millions of smaller companies. And it's not just businesses that are hurt; it's local governments as well:
Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening.
As Rates Soar, a Slowdown in the Municipal Market The sudden loss of credit, one of the ripple effects of the current financial turmoil, is affecting local governments in all parts of the country, rich and poor alike. In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.
Billings, Mont., is struggling to come up with $70 million more for a new emergency room. And Maine has been unable to raise $50 million for highway repairs.
And for conservatives who are skeptical about the need for a rescue package, I ask the following question: when was the last time a Carter administration official was right about the economy?